ABSTRACT Despite the use of exogenous surfactant, steroids, and mild ventilation, premature infants often require oxygen assistance and many develop bronchopulmonary dysplasia (BPD). BPD is the most common form of chronic lung disease in newborns and thought to be caused by oxidative stress that disrupts lung development. While many infants receiving oxygen or suffering from BPD eventually leave the hospital, they often exhibit reduced lung function even as adolescents. Moreover, recent epidemiologic studies indicate children who had been exposed to elevated oxygen at birth are more likely to have viral infections, asthma, increased sensitivity to second hand cigarette smoke, and more out-of-school sick days than children who were not exposed to oxygen. Thus, there is an urgent need to understand how oxidative stress permanently disrupts lung development in premature infants and how these changes enhance susceptibility to future respiratory insults. While investigating how hyperoxia disrupts lung development in neonatal mice, we identified a novel subpopulation of alveolar epithelial Type II cells that selectively expresses genes that destroy RNA viruses and bacteria, and control asymmetric cell division of stem/progenitor cells. This putative virus resistant subpopulation may be critical for alveolar repair following infection because Type II cells are trophic for influenza and other RNA viruses. Indeed, this subpopulation of Type II cells proliferated while other Type II cells died when mice were infected with influenza A virus. Moreover, adult mice exposed to hyperoxia as neonates have simplified lungs with fewer alveolar epithelial Type II and more Type I cells. These mice also exhibit significantly greater inflammation, fibrosis, and mortality when infected with influenza A virus. Based upon these findings, we propose to test the hypothesis that hyperoxia permanently disrupts alveolar lung development by stimulating the differentiation of alveolar epithelial Type II into Type I cells and this is associated with enhanced susceptibility to influenza virus due to loss of a virus-resistant subpopulation of Type II cells. By defining how hyperoxia affects alveolar epithelial cell differentiation, we hope to clarify how it disrupts neonatal lung development and why infants born prematurely continue to suffer from respiratory infections throughout life.